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Wall Street firms may get their biggest payday -- nearly $1 billion in fees -- working for the government to break up AIG (AIG). The fees will be four times that paid to break up AT&T Corp in 1996, according to a report in today's Wall Street Journal. Most of the fees will be earned by Wall Street banks and lawyers as pieces of AIG are sold off.

The government hopes this grand sell-off over three to five years will enable the taxpayers to recoup more than $100 billion loaned to AIG. The government currently owns almost 80 percent of AIG.

Morgan Stanley (MS) stands to get the biggest payday thanks to deals it made with then Treasury Secretary Henry Paulson in the summer of 2008. Morgan Stanley has been assisting the Federal Reserve with AIG and earned about $10 million so far. But that's just peanuts compared to the likely $250 million it will earn from the coming AIG deals. Not surprising, others that will benefit from these deals would be Goldman Sachs (GS), Bank of America (BAC) and JPMorgan Chase (JPM).

The Journal estimates that the deals could be worth more or less than $1 billion, depending on market conditions, how the deals are structured and how successful the government is at extracting itself from its ownership stake. The restructuring is expected to take three to five years.

The deals will put the government in the position of hiring the firms it regulates. Can the government truly manage these deals in the best interest of the taxpayers, while regulating the deal makers? We'll see, but I have my doubts.

Right now, AIG is planning two multibillion-dollar IPOs of insurance subsidiaries and is weighing a third. Some smaller units are being sold separately. For example, Morgan Stanley is the global coordinator and lead bookrunner for the spinoff of AIG's Asian life-insurance business in Hong Kong that could sell for $4 to $10 billion with fees ranging from $35 to $90 million. Morgan Stanley got $4 million in upfront advisory fees in October 2008 and continues to collect $2.5 million each quarter, according to a report in China's business newspaper, The Standard.

We knew backdoor deals were being made as part of the pressure Paulson put on banks to take the TARP money. Now we're starting to see how much money in profits was truly on the table for these banks. Morgan Stanley also is being paid for work on Fannie Mae and Freddie Mac. In today's Washington Post, there's speculation that good banks and bad banks will be created from what's left of Fannie Mae and Freddie Mac. I'm betting Morgan Stanley has the rights to those deals as well.

Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies and Trading for Dummies.